On Monday, analysts encouraged investors to buy physical gold and the bullion investment community took the advice to heart. The bullion found renewed strength to book some gains on Monday and Direxion Shares Exchange Traded Fund Trust also sported decent gains. The gains also continued on Tuesday and the yellow metal rose to a two-week high. The gains in the bullion could be traced to a weakness in equities and in the U.S. dollar due to waning speculations about an increase in interest rates.
Yesterday, gold for December delivery gained as much as 0.7% to end the session at $1,356.90 an ounce. The gains in the bullion yesterday provide a breakout above the critical $1,350 level, which has capped gains in the bullion in the last couple of sessions.
George Soros is bearish in equities
Veteran billionaire investor, George Soro has a bearish stance on equities and he is putting his money in the same place as his mouth. In the second quarter, Soros increased his bearish bets on the equity markets based on data available on his 13-F fillings for the second quarter. Mr. Soros sold about 37% of his long positions in equities and bought short positions with put options instead. Now, Soros has put options on a number of ETFs that track the S&P 500 and the Russell 2000 index among others.
Of course, there’s the risk that George Soro’s short position on equities might be old news. After all, equities have rallied in the weeks following the filling of the 13-F and Soro’s might have changed his position. Nonetheless, the fact remains that Soro’s invests for the long-term and the fundamentals that supports his bullish position on gold are still very much in place.
Gold finds strength on weaker dollar and equities
The possibility that the U.S. Federal Reserve might raise interest rates this year has been the major factor influencing the prices of the bullion in the year-to-date period. Interestingly, talks about a rate hike are also being influenced by economic data and economic outlook. The recently released economic data in the Consumer Price Index (CPI) has weakened the prospects of a rate hike.
U.S. consumer prices were flat in July as it rose 0.8% from the year ago period. Core CPI was up 2.2% which is below 2.3% reading in June – Core CPI also underperforms the expected reading of 2.5% gain. In other development, gasoline prices fell for the first time in five months to indicate a moderation in underlying inflation.
Given the unimpressive nature of data on the consumer front, the prospects of a rate hike has dimmed and gold is shining brighter. For instance, Bloomberg reports that “the odds of an interest-rate increase by December slipped to 49 percent, from 51 percent earlier on Tuesday”.
The fact that the fed is not likely to raise interest rates in September has increased the bullish prospects of gold and Direxion Shares Exchange Traded Fund Trust . Miguel Perez-Santalla, VP at Heraeus Metal Management observed that “The CPI initially drove the gold price higher but then NY Federal Reserve President (William) Dudley hinted that interest rate hikes could come as early as this September.”
The minutes of the Fed’s July meeting is due to be leased today by 2:00PM EDT. The market will have a clearer insight into the mindset of the feds when the minutes hits the newsstands. Nonetheless, Societe Generale analyst Robin Bhar thinks that “the Fed should reiterate their data dependency, that in the uncertainty they would want to see inflation and wage targets… given that the data has been lukewarm, apart from the July jobs data, December now seems the only opportunity for this year.”